June 12, 2017

U.S. Department of Labor Withdraws Obama-Era Guidance on Independent Contractors and Joint Employers, Signaling Significant Shift in Wage and Hour Policy for Nonprofits and Other Employers

4 min

On Wednesday, June 7, 2017, the U.S. Department of Labor (DOL) withdrew two Wage and Hour Division administrative interpretations on independent contractors and joint employment, thereby signaling a significant shift in wage and hour policy. The withdrawn Obama-era guidance had heightened the scrutiny of employers with respect to their classification of workers as employees, and had adopted expansive standards for determining joint employment with contractors and other related organizations. While the withdrawal of the guidance has little bearing on existing law, it is a strong indication that the Trump administration will attempt to reverse Obama-era policy in favor of less aggressive regulation and oversight of nonprofits and other employers.

The Administrative Interpretations

In 2015, the DOL's Wage and Hour Division (WHD) issued Administrative Interpretation No. 2015-01. Authored by WHD Administrator David Weil, the guidance stated that most workers are employees—rather than independent contractors—under the federal Fair Labor Standards Act (FLSA) definition of "employment." The guidance effectively created a presumption that workers are employees under the FLSA, underscoring the importance and level of scrutiny placed on employers to verify that they were correctly classifying workers.

The next year, the WHD published Administrative Interpretation No. 2016-01, addressing joint employment under the FLSA and the federal Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The guidance, also authored by Administrator Weil, offered new standards for determining when organizations are joint employers with contractors and other related organizations under the FLSA and MSPA. Administrator Weil called for an expansive definition of joint employment—suggesting, for instance, that organizations that share clients may be joint employers, and that an employer may be a joint employer with a contractor if the contractor's employee(s) repeatedly perform(s) work for the employer.

Immediate Impact

Withdrawing the guidance has little, if any, impact on existing law, and does not change the liability that nonprofits and other employers may face as a joint employer with a contractor or as a result of misclassifying workers. Indeed, the DOL emphasized in its announcement that the removal "does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Protection Act, as reflected in the Department's long-standing regulations and case law."

The withdrawal of the WHD administrative interpretations does not directly affect the risks associated with misclassifying nonprofit workers. The misclassification of workers still exposes nonprofits and other employers to significant liability risks, including back wages, overtime, Social Security and Medicare taxes, workers' compensation, and unemployment insurance, among other risks. Nonprofit employers should continue to ensure that their workers are properly classified as employees or independent contractors under the appropriate standards, particularly the FLSA and Internal Revenue Service tests.

Similarly, nonprofits and other employers may still be liable as joint employers under the FLSA or MPSA. With or without the WHD administrative interpretation, joint employer determinations are unpredictable because the law is not clear. The National Labor Relations Board's Browning-Ferris decision is still under appeal at the D.C. Circuit. In Browning-Ferris, the Board found that an organization can be liable for its contractor as a joint employer even if the organization exerts no control over the contractor's workers. Despite the withdrawal of the WHD guidance, employers that have such relationships with contractors should continue to analyze their status under the relevant standards and ensure compliance with the DOL-enforced laws.

Signal for the Future

The withdrawal of the administrative interpretations is significant because the Trump administration is sending a message about its intention to take a less aggressive approach to the enforcement of this aspect of the wage and hour laws than the Obama administration took. The withdrawal is likely only the first of a number of steps that could be taken by the administration to move away from Obama-era wage and hour policy and eventually enact more pro-employer regulations.

Despite the symbolic significance of withdrawing the administrative interpretations, it is unlikely that there will be substantive change to wage and hour regulations and law in the near future. In his confirmation hearing, U.S. Secretary of Labor Alexander Acosta expressed his intention to direct agencies to issue opinion letters as regulatory guidance instead of administrative interpretations; however, the further issuance of opinion letters—or any new guidance—will probably remain at a standstill until President Trump appoints an administrator of the DOL's Wage and Hour Division.